Financial Information

Material fluctuations of the consolidated statement of profit or loss items are explained below:

Revenue

The Group’s revenue for the financial year ended 31 December 2024 (“FY2024” or the “Reporting Period”) increased by approximately RMB264.1 million, or approximately 11.7% from approximately RMB2,255.9 million in the previous financial year ended 31 December 2023 (“FY2023”) to approximately RMB2,520.0 million in FY2024.

After the completion of the acquisition of Nanjing Zhangyu Information Technology Co., Ltd. (“Nanjing Zhangyu”) and Shanghai Zhangyu Information Technology Co., Ltd. (“Shanghai Zhangyu”) (collectively, the “Zhangyu Companies”) in July 2022, the Zhangyu Companies have contributed approximately RMB238.3 million of revenue in FY2024, representing an increase of approximately RMB35.6 million or 17.6% year-on-year.

The other reason contributing to the increase in revenue for FY2024 comparing FY2023 is due to the completion of the acquisition of Zhejiang Zhongguang New Energy Technology Co., Ltd. and its subsidiaries (“Zhongguang New Energy”) in July 2023. The revenue of Zhongguang New Energy formed the New Energy and Services business segment of the Group. Zhongguang New Energy have contributed approximately RMB186.0 million of revenue in FY2024 compared with the revenue contribution of approximately RMB77.1 million in the second half of FY2023, representing an increase of approximately RMB108.9 million or 141.2% year-on-year.

By separating the revenue contribution by the Zhangyu Companies and Zhongguang New Energy in FY2024, the Telecommunications business segment recorded an increase in revenue of approximately RMB119.5 million or 6.0% from FY2023’s approximately RMB1,976.2 million to FY2024’s approximately RMB2,095.7 million. Below is an analysis of revenue according to the categories of business segments.

Integrated Circuits and Digital Technology

With the completion of the acquisition of the Zhangyu Companies in July 2022, a new business segment of Integrated Circuits and Digital Technology comprising the Zhangyu Companies was formed (to better reflect the Group’s business operations and development, the Integrated Circuits and Digital Technology business segment was renamed during the FY2024 from digital technology and digital security). During FY2024, Zhangyu Companies have recorded revenue of approximately RMB238.3 million (representing an increase of approximately RMB35.6 million or approximately 17.6% from approximately RMB202.7 million during FY2023), of which revenue from (i) design services was approximately RMB58.7 million (FY2023: approximately RMB44.4 million); (ii) tape-out service was approximately RMB102.1 million (FY2023: approximately RMB63.9 million); and (iii) digital technology, cloud computing and services were approximately RMB77.5 million (FY2023:approximately RMB94.4 million).

New Energy and Services

With the completion of the acquisition of the Zhongguang New Energy in July 2023, a new business segment of New Energy and Services was formed with a focus on the supply of electricity through the production and sales of solar power as well as the provision of development consultation and technical services of the solar thermal power generation technology.

In FY2024, Zhongguang New Energy have recorded revenue of approximately RMB144.2 million from the sales of solar power from the business segment’s 50MW and 10MW power generating facilities. In FY2024, the 50MW power plant has operated 4,915 hours (representing a decrease of approximately 5.7% year-on-year) and generated 140.15 MkWh of electricity (representing a decrease of approximately 8.1% year-on-year), of which the grid-connected power generated was 138.26 MkWh (representing a decrease of approximately 7.8% year-on-year). The revenue in FY2024 also included revenue from the operation and maintenance (“O&M”) and others of approximately RMB41.8 million. The development of the O&M business will not only enrich the income base of the New Energy and Services business segment, but also create a sustainable and stable stream of revenue to the Group. The New Energy and Services business segment will provide the Group with stable and consistent income stream and marked the Group’s successful leap into a new business diversification arena.

Telecommunications

Amid continuous fierce market competition during FY2024, Telecommunications business segment recorded a slight increase in revenue of RMB119.5 million or 6.0% from the previous year due to the Group’s increased effort on market exploration with more competitive pricing strategy and broadening its products mix width in order to maintain its market position and securing orders from major telecommunication operators in the PRC.

Gross profit margin

The Group achieved an overall gross profit margin of approximately 18.5% for FY2024 compared to approximately 19.3% for FY2023, representing a decrease of approximately 0.8 percentage point year-on-year. By separating the Integrated Circuits and Digital Technology business segment and New Energy and Service business segment, the rest of the Telecommunications business segment achieved a combined gross profit margin of approximately 14.0% during FY2024, representing a decrease of approximately 1.3 percentage points from the previous year’s gross profit margin of approximately 15.3%. The Integrated Circuits and Digital Technology business segment has achieved a gross profit margin of approximately 36.2% during FY2024 (approximately 41.7% during FY2023), representing a decrease of approximately 5.5 percentage points year-on-year. During FY2024, the New Energy and Service business segment has achieved a gross profit margin of 47.6% (approximately 61.8% after the completion of the acquisition in July 2023 and up to the end of FY2023), representing a decrease of approximately 14.2 percentage points year-on-year.

As mentioned before, the Telecommunications business segment has faced strong market competition, in order to maintain its market share, more competitive pricing strategy was applied in order to secure more orders, therefore gross profits recorded a decrease year-on-year.

Although gross profit margin has recorded a slight decrease, the increase in revenue has offset the effect from the decrease in gross profit margin. Gross profit contribution for the Telecommunications business segment in FY2024 has recorded a year-on-year slight decrease of approximately RMB2.7 million or 0.9% from FY2023’s RMB302.5 million to FY2024’s RMB299.8 million.

For the Integrated Circuits and Digital Technology business segment, overall gross profit margin for FY2024 was approximately 36.2% (gross profit margin of approximately 41.7% during FY2023), representing a decrease of approximately 5.5 percentage points year-on-year. Due to the nature of digital technology, cloud computing and services businesses, gross profit margins are generally higher than the Telecommunications business segment. Because of the change in products mix in FY2024 comparing FY2023, the Integrated Circuits and Digital Technology business segment has recorded a decrease in gross profit margin and gross profit contribution in FY2024 was approximately RMB86.4 million, representing a slight increase of approximately RMB1.9 million or approximately 2.2% from FY2023’s approximately RMB84.5 million.

For the New Energy and Services business segment, overall gross profit margin for FY2024 was approximately 47.6% and gross profit contribution to the Group was approximately RMB88.3 million during FY2024. In FY2023, after the completion of acquisition in July 2023, the New Energy and Services business segment has recorded a gross profit margin of approximately 61.8% and gross profit contribution of approximately RMB47.6 million. The decrease in the gross profit margin for the New Energy and Services business segment is because during FY2024, there were technical modification and maintenance leading to an increase in direct operating costs. Also, the revenue from O&M and others of the New Energy and Services business segment has a lower gross profit margin than the solar thermal power generation, therefore the New Energy and Services business segment recorded a lower gross profit margin in FY2024 comparing its contribution in FY2023 after its acquisition. As the Integrated Circuits and Digital Technology and New Energy and Services business segments have higher gross profit margin than the Telecommunications business segment, the Group recorded a slight decrease in the combined gross profit margin year-on-year.

In order to improve the Group’s gross profit margin, the Group will enhance product profitability by increasing investment in new product research and development and the application of new technologies and the development of high value-added services. On the other hand, the Group will continue to promote intelligent, information-based and lean development. In addition to micro-innovation and micro operating activities, the Group will also continue to improve output efficiency, reduce labor and materials consumption, control procurement costs and strengthen inventory management, thereby breaking through the bottleneck of costs improvement and maintaining an appropriate gross profit margin to cope with market competition pressure. With the growing importance and trend of using green and renewable energy in the China domestic market and overseas and the growing demand on integrated circuits and digital technology in the era of booming artificial intelligence, the Group envisages that the further development of the two new business segments, the Integrated Circuits and Digital Technology and New Energy and Services business segments will further contribute to the sustainable long term development and profitability of the Group.

Other operating income

Other operating income increased by approximately RMB4.4 million or approximately 13.9% from approximately RMB31.6 million in FY2023 to approximately RMB36.0 million in FY2024. The increase is primarily due to:

1. an increase in government grants and subsidies of approximately RMB11.2 million; and
2. adecrease in net foreign gain of RMB7.9 million.

Selling and distribution expenses

Selling and distribution expenses increased by approximately RMB23.4 million or approximately 21.7% from approximately RMB107.8 million in FY2023 to approximately RMB131.2 million in FY2024. The increase is due to a combination of various factors including the increase in salary expenses under selling and distribution expenses due to increased effort on market exploration and the increase in transportation costs and business
development expenses.

Administrative expenses

Administrative expenses increased by approximately RMB27.3 million or approximately 37.7% from approximately RMB72.5 million in FY2023 to approximately RMB99.8 million in FY2024. The increase was mainly due to (i) the full year consolidation of Zhongguang New Energy in FY2024 (comparing only 5 months of administrative expenses in FY2023 after the completion of the acquisition); and (ii) an increase in legal and professional fees due to the various corporate actions such as connected transactions and discloseable transactions undertaken in FY2024.

Impairment loss on trade and other receivables

The impairment loss on trade and other receivables for FY2024 is approximately RMB7.0 million (FY2023:impairment loss of approximately RMB26.6 million).

Other operating expenses

Other operating expenses increased by approximately RMB33.7 million or approximately 26.9% from approximately RMB125.5 million in FY2023 to approximately RMB159.2 million in FY2024. Such change is mainly due to the increase in research and development (“R&D”) expenses by approximately RMB33.6 million or approximately 29.3% year-on-year from FY2023’s approximately RMB114.7 million to approximately RMB148.3 million in FY2024. During FY2024, approximately RMB118.9 million (representing an increase of approximately RMB22.6 million or 23.5% year-on-year) of R&D is attributable to the continuing R&D activities undertaken for the modifications and improvements to the Group’s telecommunications products during FY2024; approximately RMB20.0 million is due to the R&D undertaken by the Zhangyu Companies during FY2024; and approximately RMB9.4 million is due to the R&D undertaken by Zhongguang New Energy during the FY2024 (approximately RMB4.8 million during the second half of FY2023).

Interest expense

Interest expense increased by approximately RMB20.5 million or approximately 66.1% from approximately RMB31.0 million in FY2023 to approximately RMB51.5 million in FY2024, mainly because of the bank borrowings for the acquisition of Zhongguang New Energy during FY2023 and the full year interest expenses in FY2024 relating to Zhongguang New Energy’s bank loans.

Profit before taxation

Profit before taxation decreased by approximately RMB36.8 million or approximately 29.3% from approximately RMB125.5 million in FY2023 to approximately RMB88.7 million in FY2024.

Income tax

The Group’s main subsidiaries, Jiangsu Hengxin Technology Co., Ltd. (“Jiangsu Hengxin”), Zhangyu Companies and the subsidiary of Zhongguang New Energy, Qinghai Zhongkong Solar Power Co., Ltd., have been subject to an incentive tax rate of 15% in FY2024 as they qualify as a high-tech enterprise in the PRC. Income tax expense decreased by approximately RMB6.0 million or approximately 28.0% from approximately RMB21.4 million in FY2023 to approximately RMB15.4 million in FY2024 due to the decrease in profit before taxation.

Profit Attributable to Equity Shareholders of the Company

In view of the above, after taking into account of the effect of non-controlling interests (a decrease in profit sharing to non-controlling interest in FY2024 due to the completion in the acquisition of the remaining 49% equity interests of the Zhangyu Companies in July 2024), profit attributable to equity shareholders of the Company decreased by approximately RMB27.5 million or approximately 39.5% from approximately RMB69.7 million in FY2023 to approximately RMB42.2 million in FY2024.

Consolidated Statement of Financial Position

Material fluctuations of the consolidated statement of financial position items are explained below:

Intangible assets

Intangible assets amounted to approximately RMB227.5 million as at 31 December 2024 (as at 31 December 2023: RMB241.5 million), representing a decrease of approximately RMB14.0 million or approximately 5.8% and mainly represent customer relationship, patents, intellectual property resources and licence. The decrease is mainly due to the amortisation during FY2024.

Goodwill

As at 31 December 2024, goodwill amounted to approximately RMB201.6 million (as at 31 December 2023:RMB201.6 million), of which RMB155.1 million was due to the acquisition of the Zhangyu Companies during the year ended 31 December 2022 and RMB46.5 million was due to the acquisition of Zhongguang New Energy during FY2023 Based on the independent valuation performed by an external valuation firm engaged by the Group, no impairment on goodwill was required for FY2024.

Inventories and other contract costs

Inventories and other contract costs (comprising raw materials, work-in-progress, finished goods and other contract costs) increased by approximately RMB32.3 million or approximately 16.6% from approximately RMB194.9 million as at 31 December 2023 to approximately RMB227.2 million as at 31 December 2024. The increase was mainly due to the increase in finished goods for the Telecommunications business segment because of the goods-in-transit close to the year end of FY2024.

Trade and other receivables

1. Net trade and bills receivables increased by approximately RMB465.5 million or approximately 56.1% from approximately RMB830.3 million as at 31 December 2023 to approximately RMB1,295.8 million as at 31 December 2024. The increase is mainly due to the increase in the revenue during the last quarter of FY2024. As at 31 December 2024, based on the invoice date and net of allowance for impairment, approximately 73.9% of the net trade and bills receivables are within 6 months as compared with that of approximately 70.8% as at 31 December 2023. For long aged net trade and bills receivables, as at 31 December 2024, approximately 5.8% were over two years (as compared with 7.3% as at 31 December 2023).
2. Net other receivables increased by approximately RMB5.2 million or approximately 5.4% from approximately RMB96.6 million as at 31 December 2023 to approximately RMB101.8 million as at 31 December 2024. The increase was mainly due to the (i) decrease in prepayments by approximately RMB9.3 million; (ii) decrease in refundable deposits by approximately RMB6.4 million; (iii) increase in other receivables by approximately RMB15.3 million; and (iv) increase in tax recoverable of approximately RMB5.5 million.

Trade and other payables

1. Trade payables increased by approximately RMB349.1 million or approximately 122.5% from approximately RMB284.9 million as at 31 December 2023 to approximately RMB634.0 million as at 31 December 2024. The increase in trade payables is mainly due to the increase in the Group’s purchases for the Telecommunications business segment in anticipation of the increase in raw materials costs.
2. Other payables recorded an increase of approximately RMB0.2 million or approximately 0.2% from approximately RMB105.9 million as at 31 December 2023 to approximately RMB106.1 million as at 31 December 2024. The increase is mainly due to (i) the decrease in tender deposits of approximately RMB6.9 million; and (ii) the increase in VAT and other taxes payable by approximately RMB6.7 million.

Current bank loans and non-current bank loans

The current and non-current bank loans as at 31 December 2024 amounted to approximately RMB1,498.0 million (as at 31 December 2023: approximately RMB1,012.9 million). The increase in total current and non-current bank loans is mainly due to the new loan in FY2024 to finance the acquisition of the remaining 49% equity interests of the Zhangyu Companies.

SUBSIDIARIES

The major subsidiaries of the Company are Jiangsu Hengxin, Jiangsu Hengxin Wireless Technology Co., Ltd, Hengxin Technology (India) Pvt Ltd, Hengxin Technology International Co., Limited, HODL PCC Limited, Jiangsu Hengxin Zhonglian Communication Technology Co., Ltd., Hengxin Metaverse Limited, Xin Ke Xin (Suzhou) Technology Co., Ltd., Yixing Tianyue Enterprise Management Consulting Partnership (Limited Partnership), Nanjing Zhangyu Information Technology Co., Ltd., Shanghai Zhangyu Information Technology Co., Ltd., Wuxi Sihai Technology Co., Ltd., Shanghai Zhangyu Semiconductor Co., Ltd., Hangzhou Longkong Zhongguang Enterprise Holding Enterprise Partnership (Limited Partnership), Zhejiang Zhongguang New Energy Technology Co., Ltd., Zhongguang (Qinghai) New Energy Science Technology Co. Ltd., Heli (Qinghai) Operation And Maintenance Technology Co., Ltd., Qinghai Zhongkong Solar Power Co., Ltd. (青海中控太陽能發電有限公司), and Qinghai Zhongkong Solar Power Co., Ltd. (青海眾控太陽能發電有限公司).

FOREIGN CURRENCY EXPOSURE

Renminbi (“RMB”) is the functional currency of the Group. Currencies other than RMB expose the Group to foreign currency risk. The Group has foreign currency sales and its revenue and costs are denominated in RMB, India Rupees (“INR”) and United States dollars (“USD”). Some of the Group’s bank balances are denominated in USD, Singapore dollars (“SGD”), Hong Kong dollars (“HKD”) and INR, whilst some costs may be denominated in HKD, SGD and INR. The Group has implemented a hedging policy to strike a balance between the uncertainty and the risk of opportunity loss in light of the growing significance of its exposure to the fluctuations in foreign currency, under which policy foreign exchange forward contracts may be used to eliminate the currency exposure. The Group has entered into certain forward contracts as at the end of the Reporting Period on hedging the expected fluctuations of the exchange rate of USD and will continue to monitor foreign exchange exposure and consider hedging other significant foreign currency exposure should the need arise.

DONATION AND CAPITAL COMMITMENTS

As at 31 December 2024, the capital commitments of the Group in respect of the purchase of property, plant and equipment were approximately RMB914,000 (31 December 2023: approximately RMB10,577,000).

The Group’s PRC subsidiary has signed an intention letter to donate RMB500,000 per annum from 2007 for a period of 20 years to a charitable organization in the PRC when making profit in the year. As at 31 December 2024, the donation commitment was approximately RMB1,000,000 (31 December 2023: approximately RMB1,500,000).

CHARGE OR PLEDGE OF ASSETS

As at 31 December 2024, deposits amounting to approximately RMB403,659,000 (2023: RMB30,164,000) were pledged to banks as guarantees for bidding of customer contracts and issuing letter of guarantee. Pledged bank deposits bear interest at an average effective interest rates at 1.4610% (2023: 1.3933%) per annum and for a tenure of approximately 4 to 60 months (2023: 4 to 60 months). Remaining pledged deposits is pertaining to the security deposit for the commodity future contracts entered to hedge the purchase of raw materials during the year.

As at 31 December 2024, deposit amounting to approximately RMB35,000,000 (2023: RMB35,000,000), electric generating facilities amounting to approximately RMB790,562,000 (2023: RMB824,517,000) and trade and bills receivables amounting to approximately RMB328,027,000 (2023: RMB256,940,000) were pledged to banks for secured bank loans and banking facilities at an interest rate of 2.40% – 4.25% (2023: 4.35% – 4.90%) per annum. Pledged bank deposits bear interest at an average effective interest rates at 2.9975% (2023: 2.9770%) per annum and for 156 months. The pledged deposits will be released by the expiry of relevant banking facilities.

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 December 2024, the Group’s total assets were approximately RMB4,666,187,000 (2023: RMB4,247,771,000) (of which current assets were approximately RMB2,928,291,000 (2023: approximately RMB2,517,664,000) and non-current assets were approximately RMB1,737,896,000 (2023: approximately RMB1,730,107,000)), the total liabilities were approximately RMB2,319,095,000 (2023: approximately RMB1,509,198,000) (of which current liabilities were approximately RMB1,229,692,000 (2023: approximately RMB648,831,000) and non-current liabilities were approximately RMB1,089,403,000 (2023:  approximately RMB860,367,000)), and shareholder’s equity attributable to equity shareholders of the Company reached approximately RMB1,561,877,000 (2023:approximately RMB1,925,709,000). As at 31 December 2024, the Group’s total cash, time deposits and pledged deposits were approximately RMB1,455,212,000 (31 December 2023: approximately RMB1,380,821,000). As at 31 December 2024, the Group has current bank loans due within one year of approximately RMB424,602,000 (2023: approximately RMB176,543,000) carrying fixed interest rates and non-current bank loans of approximately RMB1,073,417,000 (31 December 2023: approximately RMB836,366,000) carrying fixed interest rates. At 31 December 2024, the Group had approximately RMB2,844,000,000 (2023: approximately RMB3,251,000,000) of unutilised bank borrowing facilities.

The Group generally finances its operations from cash flows generated internally and short-term bank borrowings.